„Expected Utility, μ-σ Preferences, and Linear Distribution Classes: A Further Result“

Hans-Werner Sinn

Journal of Risk and Uncertainty 3, 1990, pp. 277-281; NBER Working Paper No. 1491, January 1991.

Abstract

This article is an extension of Meyer and Sinn’s results on the representation of arbitrary von Neumann-Morgenstern functions in μ-σ space when the probability distributions to be compared belong to a linear distribution class. It shows that, when absolute risk aversion decreases, stays constant, or increases not too fast, an increase in σ, given μ, increases the indifference curve slope: increased riskiness increases the required marginal compensation for risk when risk is measured by the standard deviation of wealth or income.